Resource Based View of the Firm

RBV Barney

Summary of the Resource Based View of the Firm. Abstract

Jay Barney (1986, 1991)

Birger Wernerfelt (1984)

Economic theory holds that in the
normal course, and in the absence of market imperfections, abnormal
economic rents will get competed away by rivals or new entrants to an
industry. The Resource Based View holds that firms can earn
sustainable supra-normal returns if and only if they have superior
resources and those resources are protected by some form of isolating
mechanism preventing their diffusion throughout industry.

Edith Penrose's contributed to the RBV field as early as 1959, when
she argued: "a firm is more than an administrative unit; it is also a
collection of productive resources the disposal of which between
different users and over time is determined by administrative decision.
When we regard the function of the private business firm from this point
of view, the size of the firm is best gauged by some measure of the
productive resources it employs". And Birger Wernerfelt coined the
term in 1984. However most scholars consider Jay Barney as
the father of the modern RBV of the Firm This theory
suggests that there can be heterogeneity or firm-level differences among
firms that allow some of them to sustain competitive advantage.
Therefore, the RBV emphasizes strategic choice, charging the firm’s
management with the important tasks of identifying, developing and
deploying key resources to maximize returns.

Barney (1991: Firm resources and sustained competitive advantage) made clear that abnormal rents can be earned from resources to the extent that they are:

Valuable (when they enable a firm to conceive or
implement strategies that improve its efficiency or
effectiveness)

Rare (valuable firm resources possessed by large
numbers of competing firms cannot be sources of either a
competitive advantage or a sustainable competitive advantage)

Non-Substitutable (there must not be strategically
equivalent valuable resources that are themselves either not
rare or imitable)

Differences may occur in the form of resources such as patents,
properties, proprietary technologies, or relationships. Most scholars
claim that it is only/mainly
intangible
resources that explain performance heterogeneity among firms and
thus are the likely sources of competitive advantage. (Galbreath and
Galvin recently discovered that while RBV theory largely associates
firm performance with intangible resources, the association may not
always hold true empirically. One explanation may be that the strength
of some resources are dependent upon interactions or combinations with
other resources and therefore no single resource—intangible or
otherwise— becomes the most important to firm performance (Academy of
Management Best conference Paper 2004 BPS: L6))

'VRIN resources' are tough to find. This becomes especially
clear when we look at the work done on strategies sometimes
characterized as 'economizing' (Porter, 1996). These include
reengineering, enterprise systems,
benchmarking, downsizing, and other
similar approaches of efficiency. Unfortunately, such techniques are available to all
competitors in an industry. They merely raise the bar for everyone,
usually in a transparent way, and do not produce long-term competitive
advantage.

There is a dilemma in attainable resources not being sustainable.
Clearly valuable resources that sustain advantage must be inimitable
-and therefore not available to those who do not already have them.
Imitable resources, on the other hand, can be attained by their
aspirants. But as soon as they show clear promise, they risk being
competed away: their strength becomes their weakness. Thus attainable
resources are not sustainable.

More recently, the dynamic capability perspective has extended
the RBV to the realm of evolving capabilities. By
developing capabilities based on sequences of path-dependent learning, a
firm can stay ahead of its imitators and continue to earn superior
returns (Dierickx and Cool, 1991; Teece et al., 1997). There is nothing
to say, however, that most firms have the capacity to place themselves
on a learning curve that would prevent rivals from leapfrogging them. To
do so they would have to pick an optimal capability development
trajectory that is (a) strictly path dependent to sustain first mover
advantages, and (b) nonsubstitutable with an equally efficient
trajectory. Bounded rationality conditions might obstruct the first aim,
conditions of equifinality the second. Again the goal of inimitability
is a highly demanding one, and begs the question of how to achieve it
with assets, resources, or capabilities the firm does not already have.
Thus notwithstanding major advances in the field of strategy,
practitioners are left with a dilemma: how to develop sustainable
advantage that is-for them-not in hand but nonetheless attainable.

A study by Danny Miller in Strategic
Management Journal (Chichester: Oct 2003.Vol.24, Iss. 10; pg. 961) of a
number of firms shows how some of them were able to build not so much on
resources and capabilities as on asymmetries. Asymmetries are
typically skills, processes, or assets a firm's competitors do not
and cannot copy at a cost that affords economic rents. They are
rare, inimitable and non-substitutable, although not connected to any
engine of value creation, and, in fact, often act as liabilities. By
discovering and reconceptualizing these asymmetries, embedding them
within a complementary organizational design, and leveraging them across
appropriate market opportunities, many firms were able to turn
asymmetries into sustainable capabilities.